The Proposed Exemption is part of Northwest's strategy to achieve that goal. Finally, Northwest notes that regional airline stocks have generally been less volatile and better performing than the stocks of major airlines. daily Federal Register on FederalRegister.gov will remain an unofficial During the Hearing, employees of Northwest referenced an employee stock program that was established by the company in 1993. The IF Report notes that the Independent Fiduciary drew upon the resources of its affiliate, Aon Investment Counseling, Inc. (AIC), to assist it in its financial analysis and valuation of the Pinnacle Stock. Document Drafting Handbook Pinnacle itself had revenues of approximately $345.2 million for 2002. 404-715-2600. The restrictions of sections 406(a), 406(b)(1) and (b)(2), and 407(a) of the Act and the sanctions resulting from the application of section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall not apply to: (1) The transfer of the common shares of Pinnacle Airlines Corp. (Pinnacle Stock) to the Northwest Airlines Pension Plan for Salaried Employees, the Northwest Airlines Pension Plan for Pilot Employees, and the Northwest Airlines Pension Plan for Contract Employees (the Plans) through the in-kind contribution(s) of such shares by Northwest Airlines, Inc. (Northwest), a party in interest with respect to such Plans; (2) The holding of the Pinnacle Stock by the Plans; (3) The sale of the Pinnacle Stock by the Plans to Northwest; (4) The acquisition, holding, and exercise by the Plans of a put option (the Put Option) granted by Northwest which permits the Plans to sell the Pinnacle Stock to Northwest; and. Wall Street analysts also look favorably on ExpressJet, the Continental Airlines regional airline partner. Northwest noted that the Pinnacle Stock is being held in an Investment Fund established in connection with the Master Trust, and the amounts were allocated to the Contract Plan and Salaried Plan consistent with the provisions of the Master Trust, as described in the Proposed Exemption. The Department has determined that it would be appropriate to modify the definition of independent fiduciary as follows: (3) the annual gross revenue received by such fiduciary, during any year of its engagement, from Northwest and its affiliates exceeds 5 percent (5%) of the independent fiduciary's annual gross revenue from all sources for its prior tax year.. (d) A statement of the stock's value, the methodologies used in determining the value, the reasons for the valuation in light of the methodologies, and the reasons that the appraiser chose to apply particular valuation methods rather than others. establishing the XML-based Federal Register as an ACFR-sanctioned In its determinations, the Independent Fiduciary has also taken into account Northwest's request for a minimum funding waiver with respect to Plan contributions in 2003 and 2004, and considered the likelihood that such waiver will be granted. 3. In addition, section 404(a)(1)(C) requires that fiduciaries diversify plan investments so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. This repetition of headings to form internal navigation links The Special Conversion Option expired on February 9, 1994. However, Northwest has proposed to contribute Pinnacle Stock because it believes that it is a superior investment for the Plans. Moreover, in connection with the Omnibus Agreement entered into between Fiduciary Counselors and Northwest, Fiduciary Counselors negotiated for limitations on Northwest's ability to unilaterally amend or terminate the ASA. The Independent Fiduciary negotiated a comprehensive set of governance rights accorded to the Plans as a condition of acceptance of Pinnacle Stock. Comments: Commenters expressed a concern that the contribution of Pinnacle Stock involves a conflict of interest on the part of Northwest. Thus, to eliminate the potential for a conflict of interest, two parties completely independent of NorthwestFiduciary Counselors and Eclatrepresented the interests of the Plans in connection with the transaction. In particular, subparagraph (i) at 68 FR 2580 of the Proposed Exemption should reflect that, prior to an IPO, the Plans will be entitled to the greatest of (1) the value of the stock when contributed, (2) the fair market value of the stock on the date that the determination of fair market value is made (e.g., with respect to the Put Option, the date the Put Option is exercised), or, if greater, (3) the value as of the closing date of the Put Option. 4. The OFR/GPO partnership is committed to presenting accurate and reliable Omnibus Agreement at section 7.2, Certain Approval Rights. Northwest Response: Northwest responded that Northwest recognizes that it and the airline industry face significant financial challenges. 4. Northwest asserts that in valuing Pinnacle Stock, there are well-established valuation methodologies available to the valuation experts to assess the value of non-public securities like Pinnacle Stock. Equally important, Fiduciary Counselors negotiated for special rights associated with the Plans' acquisition of Pinnacle Stock that limit the risks associated with Pinnacle Stock. 1. As of December 31, 2002, the carrier had taken possession of 51 regional jets. As reflected in the Proposed Exemption, another Aon affiliate does provide non-plan services to Northwest, albeit services representing less than 1% of Aon's total annual revenue. Northwest will obtain an amendment of the Omnibus Agreement so that the Independent Fiduciary will have first priority to sell Pinnacle Stock in an initial public offering, if certain conditions exist. on 702 King Farm Boulevard, Suite 400, Rockville, MD 20850 / +1 212-944-4455 / issgovernance.comAMR Under Pressure to Preserve Pensions . As a result, Northwest has a strong interest in ensuring that maximum value is obtained in connection with an IPO and Northwest believes that it is appropriate for it to determine the timing of an IPO. Similarly, subparagraph (iii) at 68 FR 2580 should reflect that, after an IPO, the Plans will be entitled to the greatest of the value of the stock at the time of the contribution, or the average of the closing price for the Pinnacle Stock on the public market for the 10 trading days (or such other number if fewer than 10) preceding the exercise date, or as of the last trading day before the closing date of the Put Option. for better understanding how a document is structured but Posted on . Contact Info NWPS HQ: 4025 Delridge Way SW, Suite 250 Seattle, WA 98106 Ph: 206-933-1500 Fax: 206-938-5987 Email Address: [email protected] Driving Directions From I-5 North or South Take the W SEATTLE BR exit EXIT 163A toward SPOKANE ST Merge onto WEST SEATTLE BRIDGE Exit onto Delridge Way SW Continue on Delridge Way SW As noted in the Department's Interpretive Bulletin, 29 CFR 2509.94-3(d) (59 FR 66736, December 28 1994), apart from consideration of the prohibited transaction provisions, plan fiduciaries must determine that acceptance of an in-kind contribution is consistent with ERISA's general standards of fiduciary conduct. According to the IF Report, Eclat estimates that Pinnacle's value to the Northwest domestic system is between $520 million and $540 million annually as the carrier exists today. Northwest noted that the description of the Put Option in the first and second columns at 68 FR 2580 of the Federal Register notice accurately describes the structure of the Put Option as described in Northwest's Application. Participants and beneficiaries of the Plans benefit from Northwest's improved liquidity and continued viability and competitiveness in the current economic environment. The Department asked the Independent Fiduciary if the January 15, 2003 Valuation was based on audited financial statements. 01/18/2023, 284 Northwest notes that quarterly valuations were contemplated in the Application, but a change to annual valuations was made when Northwest and Fiduciary Counselors agreed to the Term Sheet. In negotiating the rights and restrictions set forth in the transfer and registration rights provisions of the Omnibus Agreement, Fiduciary Counselors balanced the need of the Plans to achieve greater diversification in light of the anticipated holdings of shares of Pinnacle Stock with the need to maximize the value of the investment in such stock. The IF Report provides that the Independent Fiduciary and its advisors participated in numerous telephone conferences with representatives of Northwest and Pinnacle through November, December and early January concerning the Independent Fiduciary's engagement, the proposed Contribution, the status of Northwest's minimum funding waiver applications to the Internal Revenue Service and the Proposed Exemption. Through the contribution of Pinnacle Stock, Northwest will be able to meet up to $330 million (based on the current valuation) in near term funding obligations while maintaining the airline's ability to weather difficult times, to the benefit of all concerned. See Omnibus Agreement, Definition of Early Termination Event at section 1.1. Northwest Airlines Corporation (NWA Corp.) will guarantee Northwest's obligations under the Omnibus Agreement, including the Put Option. the material on FederalRegister.gov is accurately displayed, consistent with Under the Letter Agreement, the Salaried and Contract Plans will instead hold Pinnacle Stock with a value equal to approximately 8% of their respective assets. NWA is now open for in-person visits by Appointment Only. Northwest states, as noted in the Proposed Exemption, that the Master Trust is established in a manner such that all Plans hold an undivided and commingled interest in the assets of the Trust. (c) The term control means the power to exercise a controlling influence over the management or policies of a person other than an individual. These modifications and the major comments are discussed below. Fiduciary Counselors adds that AIC, which remains a subsidiary of Aon, will continue to act as advisor in connection with this engagement. Fiduciary Counselors stated that Eclat's valuation took into account a variety of financial data. Moreover, the Plans will receive all of any investment gains attributable to their shares of Pinnacle Stock at the time of an IPO. Fiduciary Counselors notes that under section 404(a)(1) of ERISA, a fiduciary must discharge its duties with respect to a plan solely in the interest of plan participants and beneficiaries. We devoted substantial time and effort to this issue. No products in the cart. In response to the solicitation of comments from interested persons, the Department received over 1,700 letters, e-mails, faxes and phone calls, of which more than 1,000 requested that a public hearing be held on the Proposed Exemption. of the issuing agency. If the markets return, substantial upside will benefit the Plans. Registration rights and Plan director's rights preserve the value of the Pinnacle Stock while held by the Plans. As a result of instructions given to State Street, after the contribution was made to the Investment Fund, the Contract Plan owns 83.5% of the Investment Fund, while the Salaried Plan owns 16.5% of the Investment Fund. Although the Plan's option is exercisable at anytime, unlike a normal option, Northwest does not have to immediately settle. Similarly, in the second column of 68 FR 2588 (third full paragraph), the reference in subclause (II) to the closing price of Pinnacle shares on the closing date should refer to the last trading day before the closing date. Under the Omnibus Agreement, Northwest controls the timing of the IPO until the earlier of July 1, 2006 or the occurrence of an early termination event. Plan beneficiaries may also contact FSCO staff by telephone at (416) 226-7776 or toll-free at 1-800-668-0128, if they require assistance in finding this information. documents in the last year, by the Engineers Corps and the Environmental Protection Agency Browse deals and discounts on Northwest Airlines airfares, check flight status for departure and arrival times, and book available dates for low-cost tickets for your trip. In discharging its obligations under section 404(a)(1), the independent fiduciary must take steps calculated to obtain the most accurate valuation available. The Investment Fund holds Pinnacle Stock on behalf of the Contract Plan and the Salaried Plan. These can be useful Northwest states that, in this regard, some refinements were made to the provisions of the Term Sheet when the parties negotiated and entered into the final Omnibus Agreement (executed on January 15, 2003). The Omnibus Agreement further requires that Northwest provide regular notice of its liquidity to Fiduciary Counselors. Thus, the Put Option serves to protect the Plans from declines in the value of Pinnacle Stock and the liquidity notice feature ensures that the Independent Fiduciary has sufficient notice so that it may exercise the Put Option at a time when Northwest has sufficient financial resources to meet its obligation under the Put Option. The drop-off in premium passenger traffic, the weak U.S. economy, and the increased presence of low-cost carriers has impacted the ability of the network carriers to generate high yield revenue. 1, 1995) transferred the authority of the Secretary of the Treasury to issue exemptions of the type requested to the Secretary of Labor. Appendices were attached that illustrate the valuation model used and highlight some of the additional information used to conduct the analysis. The Northwest Airlines Pension Plan for Contract Employees is approximately forty percent of the Master Trust. Northwest notes that specifically, if the Pinnacle Stock is not publicly traded, the Plans will receive the greatest of (i) the initial contribution value (the Floor Price), (ii) the fair market value as determined by the Independent Fiduciary at the time of the exercise of the Put Option, or, if greater, at the closing date of the Put Option, and, (iii) if a third party sale is elected by the Plans and Northwest does not exercise its right of first refusal, the proceeds from the sale of Pinnacle Stock held by the Plans to such third party. (3) any corporation or partnership of which such person is an officer, director, partner, or employee. About the Federal Register Thus, the fourth bullet point in the second column at 68 FR 2585 (describing certain voting rights) should be modified accordingly. Additionally, Northwest notes that the Letter Agreement between Northwest and ALPA relating to a voluntary contribution of Pinnacle Stock would provide ALPA with a role in reviewing and approving the termination, and any replacement, of the independent fiduciary. However, Northwest understands that some of United's airline services agreements have been renegotiated and that it has been reported that the airline services agreement between United and Atlantic Coast Airlines is the subject of current negotiations. informational resource until the Administrative Committee of the Federal The Department also questioned whether such restrictions would similarly preclude Northwest from honoring the Put Option. The IF Report notes that in the Eclat Report, Eclat's valuation of the Pinnacle Common Stock was considerably lower than the value it ultimately determined for the Independent Fiduciary in the January 15, 2003 Valuation. The length of the Deferral varies based upon a function of (1) the liquidity of Northwest (as defined in the Omnibus Agreement) and (2) the value of Pinnacle Stock contributed to the Plans. 5. In 1994 through 1997, Northwest made annual contributions of Series C Preferred Stock to the Employee Stock Plan for the benefit of employees represented by the IAM and IBT (the other labor groups had converted their right to receive Series C Preferred Stock into Common Stock under the Special Conversion Option described below). On March 5, 2003, Jones Day submitted comments on behalf of Fiduciary Counselors, the Independent Fiduciary (the March 5 Comment). (i) The Plans incur no fees, costs or other charges as a result of their participation in any of the transactions described herein. From a fiduciary standpoint, Independent Fiduciary was required to determine whether the terms it negotiated in the Omnibus Agreement and its decision whether to accept the Contribution were prudent, for the benefit of, and in the interest of, Plan participants and their beneficiaries. Additionally, Northwest will maintain a subaccount for each Plan within the Master Trust for so long as that Plan holds Pinnacle Stock. Each share of the Series C Preferred Stock is convertible at any time into 1.364 shares of NWA Corp. Common Stock (Common Stock). (p) Any other factors necessary for a prudent determination of the market value of Pinnacle Stock. 3. Comment: A number of comments expressed concerns that Pinnacle Stock is a risky and illiquid investment and hard to value because there is no established market for the security. (c) A statement that the appraisal is being conducted to determine the fair market value of Pinnacle Stock, which is defined as the price at which the stock would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties are able, as well as willing, to trade and are well informed about the stock and the market for the stock. On May 20 and June 10, 2003, Northwest responded to certain issues raised during the Hearing that were not responded to in the April 26 Comment. (j) That the fair market value of the stock has been determined by way of a prudent investigation. [FR Doc. 2. The President of the United States issues other types of documents, including but not limited to; memoranda, notices, determinations, letters, messages, and orders. There will be no change in their personnel assigned to this engagement or in the manner in which the fees are split between the two organizations. Finally, the Department notes that the Independent Fiduciary's satisfaction of its obligations in connection with the determination of the fair market value of the Pinnacle Stock as previously described by the Department in the Preamble to the final exemption is a critical factor in the Department's decision to grant a final exemption. Northwest also believes that the value of Pinnacle Stock is less exposed to bankruptcy risk than Northwest stock. In the March 3 Comment, Northwest observed that there are three references to NWA Inc. in the second column at 68 FR 2584 that should reference Northwest (Northwest Airlines, Inc.), the wholly-owned subsidiary corporation of NWA Inc. Fiduciary Counselors and Eclat represent that Eclat was originally retained by PBGC to value Pinnacle and to evaluate the financial viability of Northwest. 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